The Ultimate Solution For A Fair Income Tax Policy In America

With the Bush tax cuts set to expire next year, there’s going to be a big debate during the mid-term elections this November!  But, should there really even be a tax debate?  It’s obvious that we should NOT raise taxes on small business owners and higher income, hard working Americans in a nascent economic recovery!

Everybody knows roughly 47% of Americans pay no federal income taxes.  Hence, the ultimate solution for tax legislation is to strip away tax voting rights for the 47% of Americans who pay no tax, but who still get to enjoy the benefits of other people’s contributions.  If you’re one of the 100+ million Americans who pay no income tax, isn’t it good enough to enjoy free public schooling, nice roads, friendly firemen and police officers protecting your neighborhood?  Being thankful is a great disposition to have.  Being greedy is not.

An Example Of A Family Making $120,000 Paying No Taxes:

“Say you’re married with salary income of $120,000, 401(k) contributions of $12,000, two under-age-17 kids, and a college student with $4,000 in education expenses. Assume you also bought a home this year that qualifies for the now-defunct $6,500 credit for existing homeowners. Finally, assume you’re eligible for the $1,500 credit for energy-efficient home improvements. Believe it or not, your 2010 federal income tax bill will be zero even if you only claim the standard deduction.

Your tax bill of $11,950 is completely wiped out by $13,300 in credits ($2,000 child credit, $2,500 education credit, $6,500 home buyer credit, $1,500 credit for energy-efficient improvements, and the $800 Making Work Pay credit). In fact, you’ll get a $1,350 check from the government because some of your credits are refundable ($13,300 of credits – $11,950 of tax = $1,350 of free money),” writes Bill Bischoff of SmartMoney.

VOTING TO RAISE TAXES ON OTHERS WHEN YOU PAY NO TAXES IS LIKE……..

* Dr. Phil writing a book and telling someone to lose weight.

* Suzie Orman telling you to invest in the stock market when only 2% of her wealth is invested in equities.

* A recent college graduate teaching you how to be rich.

* A hardcore vegetarian who wears leather shoes.

* A priest who preaches acceptance but expects you to burn in hell when Armageddon comes if you don’t convert.

* The United States implementing economic sanctions against emerging countries for polluting.

* A boss who tells you to work hard but goes and plays golf every other day and takes long lunches.

* US Treasury Secretary Geithner saying raising taxes is “the right thing to do” but cheats on his own taxes.

CONCLUSION

Some may argue that voting is a fundamental right as decreed by the 15th amendment of the Constitution.  I agree, go ahead and vote on whether the government should implement a flat tax on those who pay nothing. It’s only fair.  Just don’t go around pretending as a non tax payer, you have the right to vote on persecuting others to pay for your own free government benefits.

It’s so obvious to any rational person that if you pay no taxes, you can’t possibly be able to vote for people whose agenda it is to raise taxes on others.  Yet, millions of non tax paying Americans continue to support tax increases for the rich, who may very well be the ones who help keep the millions who don’t pay taxes employed!

Friendly Americans who pay no taxes, please have a heart and enjoy your spoils and stop punishing others further.  For the 53% of Americans who do pay taxes, let us decide what is the right level of income taxation to help support the economy and you guys.  We might vote to raise our own taxes and dis-incentivize ourselves to work hard.  So be it.  At least we get to vote on our own destiny!  Thanks!

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Regards,

Sam @ Financial Samurai – “Slicing Through Money’s Mysteries”

 

Sam started Financial Samurai in 2009 during the depths of the financial crisis as a way to make sense of chaos. After 13 years working on Wall Street, Sam decided to retire in 2012 to utilize everything he learned in business school to focus on online entrepreneurship.

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Comments

  1. Craig Gonzales says

    Hey Samurai-

    I like your analogies.

    It might be a more valid article if you specify federal income tax. Because every citizen pays sales tax and any other tax his state has offered. A lot of program are financed through other non-income tax sources… right?

    Also, your example of the family that does not have to pay tax because of numerous exemptions is valid, but your conclusion feels forced. I mean, not letting someone vote because she is eligible for exemptions? I get your point, and I completely understand your sentiment, but it seems… angry?

    I think this is a tough situation the US has found itself in. A lot of us are in trouble, or are about to be forced to pay more.

    The US has double taxation laws… so I have to pay income tax in Thailand, or Singapore, or wherever I live at the moment, as well as in US. Double taxation is unfair, no? I don’t get to enjoy the schools, policemen, et cetera. I guess I don’t have a point. I like your posts, but this one felt more angry than enlightening, so I wanted to let you know that I am also pissed about some tax laws. :-)

    Best,

    CG

    • admin says

      Hi Craig,

      I’m not angry, I just want to make a point that it’s pretty nonsense to vote for politicians who are pro raising taxes when one doesn’t pay taxes themselves.

      We all pay state income taxes as well. It’s the Federal income taxes where some pay and some don’t which is shocking.

      I thought there was tax equalization when you work overseas ie your first $80,000 is tax free?

  2. Saad says

    Nice example you used, family earning $120k. Those of us who do pay federal income tax tend to be class-ist when we think of those who don’t pay… either ppl at lower incomes who are below threshold, or ppl at higher incomes who use tax shelters.

    Your suggested solution is, for now, an academic exercise, so I pose you this question: of the 53% who would retain their right to vote, would it be one-man-one-vote, or would the weight of your vote scale with the amount you paid in taxes the previous year?

    • admin says

      Good question. What about a 47% weighting discount of a non tax payer’s vote since they don’t pay taxes?

      Do you believe people who pay no federal income taxes should have the right to vote on federal policies that require spending and fund raising?

  3. David M says

    What is all this voting about taxes – do you mean expressing opinions about taxes? Last I knew state and federal legislators VOTED on taxes.

    I’m not sure that us that pay federal income taxes (and primarily that is the tax your are saying others are “not paying”) are being persecuted. I believe we need to be taxed more as we are running large structural federal budget deficits, mostly caused by Medicare, Medicaid, Social Security and 2 wars.

    The 47% “who pay no taxes” – pay the following taxes – alchohol, cigarette, property, excise, sales, state income, etc. Regarding “Voting on taxes” why does everyone that does not smoke, think its okay to “vote” for higher cigarette taxes?

    The first sentence, which is your opinion and you are 100% entitled to it, is very obvious to you. However, it is not obvious to me, even if we let the Bush tax cuts expire, the highest rate paid in the US will still be much lower than it was in the recent past, prior to these cuts. Also, it is lower than other countries and it is just a marginal tax rate. With deductions, exemptions, etc, most people do not pay a rate anywhere the top marginal tax rates.

    • Greg McFarlane says

      “I believe we need to be taxed more”…

      If you do believe that, then it follows that you believe our federal legislators and bureaucrats have nowhere left to cut: that the government leviathan is operating as leanly as possible.
      I can show you billions upon billions of dollars of staggering waste of taxpayer funds that our government betters refuse to acknowledge, let alone do anything about. Just because our taxes are low relative to, say, Canada, doesn’t mean they’re as low as they could be in absolute terms.

    • admin says

      Yes, of course I’m talking about the ability to vote for people who are for raising taxes on certain types of people.

      Of course it’s OK to tax cigarettes to oblivion because 1) they are bad for you, 2) second hand smoke is bad for others, and 3) tobacco companies lie through their teeth saying their products are not bad for you.

  4. Larry says

    Sam: “Everybody knows that some 47% of Americans pay no taxes. ”

    No. This is simply untrue. It may be true of federal income taxes. But you ignore other taxes like payroll taxes, which are eliminated for workers earning (currently) over $106,800 and are therefore regressive, state and local taxes, and sales taxes which are also regressive in that they are a based on a flat percentage of the purchase price but not on a percentage of the buyer’s income. Since you’re ignoring the entire tax picture, your statement is invalid.

    A good place to start reading:
    http://www.theatlanticwire.com/opinions/view/opinion/47-Percent-Dont-Pay-Taxes-No-Big-Deal-3230

    Just to quote from the article:
    “There is no question that the wealthy pay a higher overall tax rate than any other group. That is an American tradition. But there is also no question that their tax rates have fallen more than any other group’s over the last three decades. The only reason they are paying more taxes than in the past is that their pretax incomes have risen so rapidly — which hardly seems a great rationale for a further tax cut.”

    Also: http://economix.blogs.nytimes.com/2010/04/13/taxing-the-rich-over-time/
    “Add it all up, and you can see why the wealthy are paying a greater share of federal taxes even though they are paying less tax on each dollar they earn. They’re simply making many more dollars than they used to.”

    Back to Sam: “Hence, the ultimate solution for tax legislation is to strip away tax voting rights for the 47% of Americans who pay no tax, but get to enjoy the benefits of other people’s contributions.”

    Unconstitutional. Voting is a right conferred solely by the voter’s age. Let’s say, for instance, that you’re a college student just turned 18 who earns no income. You can’t vote? I don’t think so.

    Much as I admire your sympathy for America’s newest underclass, the poor suffering rich, it’s misplaced unless you base your comments on the total tax picture.

    • Investor Junkie says

      Larry,

      You could also argue the poor get more entitlements and benefits than ever before no? from say 30 years ago. Who’s paying for those entitlements?

      The fact of the matter at the federal level 47% pay no taxes. Other taxes (ie state and consumption taxes) are a different matter.

      As Milton Friedman said about the 4 ways to spend money:

      http://www.youtube.com/watch?v=5RDMdc5r5z8

      1. You can spend your own money on yourself. When you do that, why then you really watch out what you’re doing, and you try to get the most for your money.
      2. You can spend your own money on somebody else. For example, I buy a birthday present for someone. Well, then I’m not so careful about the content of the present, but I’m very careful about the cost.
      3. I can spend somebody else’s money on myself. And if I spend somebody else’s money on myself, then I’m sure going to have a good lunch!
      4. I can spend somebody else’s money on somebody else. And if I spend somebody else’s money on somebody else, I’m not concerned about how much it is, and I’m not concerned about what I get.

      • Larry says

        Mr. Junkie writes: “Other taxes (ie state and consumption taxes) are a different matter.”

        Not altogether so. Federal taxes are not independent of state taxes or even sales tax. For example: if you’re in one of the 40+ states with a state tax (I’m being purposely vague because some states have their own special rules, like TN taxing only interest and dividends), you get to deduct your state taxes on your federal return. And that may be one factor that lets you itemize your deductions on Schedule A rather than paying a lower standard deduction. Conversely, if you receive a state refund, it’s taxable on your federal. And since sales tax is properly computed on the buyer’s locality, some states (NY and NJ for sure, probably others) tax out of state purchases on the state return to ensure buyers are paying their own state or county sales tax rate.

        It’s all inter-related. Federal taxes changes in 2001-03 were offset by spending cuts and tax increases at the state and local level. For example, when the Feds enacted “bonus depreciation” and a higher ceiling on Section 179 deductions, most states “decoupled” from the federal system because they feared a loss of revenue.

        As for entitlements, Social Security and Medicare are taxed up to $106,800 of income, which means the person earning anything over that amount pays nothing beyond that ceiling. And since the top 1% of households holds 35% of all the wealth in this country, it’s the lower earners who pay the largest percentage of their income in these taxes – which Sam chooses to ignore.

        The higher-income person is also someone who is likely to be most savvy in tax planning and knows how to game the system. If such a person sells stocks at a loss, they can deduct that amount from their adjusted gross income or use it to offset stocks sold at a gain, and if the loss isn’t exhausted in the first year they can carry it forward to following years – thus in effect avoiding capital gains tax on that stock.

        Our esteemed host seems eager to vilify the low-income workers those who are not paying federal taxes at all, while having nothing to say about the huge (and genuinely greedy) corporations that pay no taxes and deprive the government of far more potential revenue. He speaks of “free public schooling, nice roads, friendly firemen and police officers” as if these are all federally funded, when in fact fireman and police are mostly funded by local taxes, roads on all levels (federal/state/local), and schools mostly from state and local. In other words, we’re all paying for these services in one way or another whether we pay federal tax or not. But if you want real greed, look to Goldman Sachs and the like, earning higher profits than ever and giving employees $500K bonuses at the same time these banks refuse to extend credit to small businesses and thus help keep unemployment high.

        Use the chart linked to here to get a total picture of the relation of total taxes to total income: http://www.ctj.org/pdf/taxday2009.pdf. I’m all favor of fairness in taxes for all, but there’s no fairness if one chooses to look at a single statistic and ignore the total picture.

        • Investor Junkie says

          Well here are some flaws in your logic:

          - GS isn’t a consumer bank and in fact only became a “bank” in 2008. Retail
          customers cannot open say a checking account. Apples to Oranges comparison.

          - As a small business owner myself banks are NOT keeping unemployment high.
          This is complete BS in your argument.
          It’s all of the new taxes (forget even the expiring taxes), regulations
          and fees that are causing uncertainty with small businesses and
          causing small businesses not to hirer. You are regurgitating what the MSM are stating.
          This is just not me stating this but me speaking with my customers who also are
          small business owners.

          Lack of access to money hasn’t been a
          factor (at least from my business), I can get access to additional funding if
          needed.

          - CTJ is a Liberal org quoting their site “Requiring the wealthy to pay their fair
          share” Not exactly a neutral source to cite data. I could just as easily mention
          the Cato Institute studies.

          - Your pdf link still shows higher income people pay much more percent-wise
          (total taxes since you mention this) than the poor. Further proving Sam’s point
          and at a minimum the rich don’t get a “free ride” and in fact pay the most, especially the upper middle class.

          In the end even if taxes do go up regardless of being “fair”,what’s collected
          pretty much stays the same (around 20% of GDP). So you can debate all you
          want the rich don’t pay enough, what will be collected will net the same.

    • admin says

      Why is capping the Social SEcurity tax at a $106,000 regressive? There is a MAXIMUM social security payout, which is based on $106,000. If I earning $1 million a year, I pay my SS taxes up to $106,000 of my income, and when I retire, I only get SS benefits equal to the taxation of my first $106,000. Sounds pretty darn fair to me.

      I’m not vilifying people who don’t pay taxes at all. I’d LOVE to be one of the 47% who pay nothing and get free federal benefits as well. Who I am “vilifying” are those who pay no taxes AND believe we should RAISE taxes on those who do pay taxes. That’s just silly.

      • Larry says

        The limit on the benefit does not mean the tax itself is any less regressive. It meets the standard definition of a regressive tax, as does the sales tax.

        And as I’ve argued, we all pay taxes. There is no 47% that pay nothing. What they do not pay is federal tax, which is only part of the overall tax burden.

        So let me get this straight. You’d be happy to be a freeloader if you could, but you “villify” people for a belief?

        • The Genius says

          Hey Larry, benefits don’t increase after you pay your taxes on $106,000. He’s got you there.

          Why do you call people freeloaders? That’s so arrogant.

        • Larry says

          I was referring to the tax, not the benefits.

          My use of the word “freeloader” was solely a parsing of this sentence: “I’d LOVE to be one of the 47% who pay nothing and get free federal benefits as well.”

  5. Money Beagle says

    We have a family friend who is a CPA and has done our taxes for years. I’m always amazed at the different credits and such that he’s able to find (they’re perfectly legal, we’ve never been audited). I start looking into them, and while I’m happy to get them, I wonder if I’d even notice if they went away. I think simplifying the tax code needs to close a lot of loopholes that involve credits and such, but that’s probably only the tip of the iceberg as the whole thing is a mess!

  6. RT says

    There is a big problem with this 47% of people stat. My main problem is that the Federal Income Tax is only one tax of many. There are other payroll taxes that these people pay including Fica, Medicare, State income taxes….to say nothing about sales taxes, excise taxes, property taxes, capital gaines taxes etc.

  7. Mike - Saving Money Today says

    Hey Sam,

    I know you like to write controversial posts but suggesting there is a witch hunt going on is a little silly. Perhaps the wealthy pay a greater share of the taxes because they own a greater proportion of the wealth.

    People who have a lot of tax deductions and credits shouldn’t have a say in their government? Maybe we should return to the times when only white, land-owning males could vote?

    Last year we had our third child and with his child tax credit it put us into the zone where our deductions and payments netted out to zero so we didn’t pay any taxes last year. But that doesn’t make us freeloaders. Our public schools, police, and fire departments are primarily paid through our property taxes, of which I pay plenty. About $9000 of my income when to property taxes last year, and that doesn’t include state income tax or sales tax.

    • admin says

      That’s right. People who don’t pay taxes should have no say on raising taxes for those who pay taxes.

      Sorry you pay 4% property tax. Here in CA, it’s 1.125%, and Prop 13 which is partly a reason why we have such a large deficit.

      Congrats on your 3rd child. You do realize that the public is helping support your children right with the tax credits? I’m fine with this. I’m just not fine if you believe the gov’t should raise taxes on the 53% of Americans who already pay taxes.

      What’s your stance?

      • Larry says

        “That’s right. People who don’t pay taxes should have no say on raising taxes for those who pay taxes.”

        Now who’s being just plain silly. Like it or not, the Constitution does not base voting rights on anyone’s tax status. Mike is entirely correct. If you don’t like the tax structure as it is (including such things as the Earned Income Credit that was voted in under Nixon and has historically earned bipartisan support, then vote in your own representatives to change the tax law.

      • Mike - Saving Money Today says

        I don’t want the government to raise taxes at all. Quite the opposite I think they should be cut and the budget should be trimmed down mightily. There’s a lot of wasteful pork in the budget.

        But you do realize that when we vote for officials we’re voting for more than just tax/no tax. There are other issues that would lead one to vote for one over another.

        • Larry says

          Well, sure, in answer to your last paragraph. And I would certainly agree with your first paragraph as well if that’s what it will take to bring spending under control. Chris Christie in NJ is doing a heroic job of doing just that, and cost-cutting should be a first line of attack against uncontrolled expenses.

  8. The Genius says

    Yeah, why is it that people who pay no taxes get to vote on people (Democrats) who like to raise taxes and spend out the wazoo? That’s messed up!

    I like your income survey you have on the right. I’m assuming it’s reflective, with 500 votes, hence I can easily understand why most people commenting are FOR raising taxes, since they don’t have to pay much themselves.

    @ David M
    People vote on people who raise taxes obviously.

  9. The Genius says

    @Mike SMT – That’s right. You should have no say on whether to raise taxes on others since you pay zero income tax.

    If you pay $9000 in property tax that means you own a 600-800,000 home. Are you kidding me? If you have 3 children, your prop tax isn’t even covering the public education cost of them!

    Mike someone who owns a 600-800k home is probably making good money. Pay some taxes and contribute to America and help the budget problem not contribute to it!

      • The Genius says

        Wow, you pay 3% property tax in NJ? That’s painful. Still, $9,000 isn’t enough to support your 3 kids. Over population is a big problem and the likely #1 cause for all these budget problems.

  10. Little House says

    Okay, Sam, I’m one of those 47% statistics who doesn’t pay federal tax after all of my deductions. And, I don’t think we should raise taxes for small businesses or the wealthy. Small businesses (like my husband owns) and the wealthy do support jobs and are important to economic recovery. Yes, businesses aren’t hiring as quickly as we’d like them to because they are a little wary about the recovery. However, we will see job creation in the next year or so as businesses become less worried about their profit margin. Taxing these people will stall the recovery and not boost jobs. It would be the worst thing we could do right now.

    • admin says

      Little House – You are always the calm and collected one, which is why you are so awesome! I’m glad you don’t pay taxes. But, I’m more glad that you don’t have some warped belief that others should get persecuted for paying more tax when you don’t pay taxes yourself.

      If everybody could be as rational as you, the world would be a much better place to live!

  11. FreeLove says

    I don’t pay taxes either. I’m OK with not having the ability to vote to choose officials who raise taxes on others. I feel bad for those who continue to have to pay so much of their income to taxestaxes.

    I only make $65,000, but I would be outraged if I had to pay 40% tax as Obama wants others to do!

  12. Stephan says

    this post is definitely a little extreme, and i agree for the most part with the above commenters. to say that those 47% dont pay taxes is a straight out lie. they dont pay federal income tax, but there are dozens of other taxes and fees that they pay as well. in regards to people voting on taxes, thats not how it works with the federal income tax. if you want the numbers to change and everybody to pay, you have to vote in other politicians, not punish people who are doing nothing wrong by taking away their right to vote!

    • admin says

      Oh don’t worry, I’m just suggesting those who don’t pay taxes be prohibited from voting for politicians who are for raising taxes. Pretty simple and logical.

  13. financial bondage says

    it’s clear our tax system is unfair, outdated, too complicated, and needs to go… and the 47% is true… I read the article about that…

    everyone should pay some tax, whether you make $4000 a year or $400,000 a year… no one should be able to escape paying some taxes. A flat tax would mean that everyone pays…. no loopholes, no getting around it.

    • david M says

      Regarding the flat tax:

      1) you could have a flat tax in which you still had exemptions, deductions, credits, etc, and thus still people would not pay any federal income tax.

      2) you can make it so that we get rid of ridiculous, number of exemptions, deductions, credits and the like and still have a graduated income tax. This is what the great republican Ronald Reagan attempted to do with the tax overhaul that was passed in 1983 (not sure of the year.)

      However, Congress people need money to run elections, how do they get money, from people that want laws certain ways. Thus UNFORTUNEATELY, a very simpified tax structure, which is what you are asking for, is NOT GOING TO HAPPEN.

        • Larry says

          So how are you going to handle the states under your 15% flat tax? Are they also to have a 15% flat tax? What about the seven states, including Texas, that have no state tax, and some others like Tennessee have a modified form of state tax? How about local taxes, e.g., for New York City?

  14. Monevator says

    Wow, we’re supposedly so left-wing and socialist here in the UK I’m forever told by US bloggers (teasingly, I hope! ) but there’s no way somebody earning £120,000 could wipe out their tax bill, or anything like it.

    We don’t even get to deduct mortgage interest like you guys do — we’ve not been able to do that for more than 20 years!

    Seems a strange system you’ve got yourself there — not what it says on the tin. At least we get free health care. ;)

    • Greg McFarlane says

      “Free” health care? If that’s true, congratulations on getting your doctors, medical equipment manufacturers and hospital administrators to work for nothing.

      • Monevator says

        Yeah yeah Greg, you know what I mean. This is the kind of snarky response (note – I agree factually accurate) that I’m referring to in my comment.

        It’s kind of weakened by the news that US citizens are grabbing all the tax breaks they can get! Just seems a different kind of socialism to me – one that ‘dare not speak its name’.

    • admin says

      It’s sad you guys can’t deduct the mortgage interest in the UK! IF you guys passed that law, property would probably skyrocket another 50%.

      Free good healthcare sounds great. Do you know if foreigners who don’t work in the UK, but live in the UK also get free healthcare? Could be a good solution!

      • Monevator says

        Well, I’m no fan of deductible mortgage interest. I don’t really see why the State should be in the business of helping everyone to buy a home, especially as you imply it just increases house prices anyway, and so effectively makes the already rich, richer. Why is that in the State’s interest? Better to leave market forces do it, if you’re not going to try and pull up the bottom rungs.

        The healthcare situation is amazing, though as Greg says it’s of course not exactly ‘free’. (I actually believe there should be some sort of reform of the current system). To an extent foreigners can claim the health care, yes – it’s one reason supposedly why migration boomed in the noughties. But you can’t just hope off a plane for four hours to claim it.

        • admin says

          It’s like how the US gives a $1,500 tax credit per year for a child. The US is about more, more, more i.e. bigger homes, more kids, dominating the world.

  15. George says

    It’s on the internet, so it must be true :-)

    Consider the following points:
    1) Federal income taxes are graduated, so you’re not paying anything on the first $9,000 if single or the first $14,000 if married (marriage penalty will be reinstated next year so it won’t look so rosy for us married folks any longer). That “OH MY GOD 40% tax!” only is applied on income earned above the $150,000 level… it’s not applied to the first $150k.
    2) Bill Bischoff’s example was very forced and has a lot of ONE-TIME exemptions. That family will not be able to take advantage of them in the future unless those ONE-TIME exemptions are reenacted.
    3) A perfectly legal way to avoid paying federal income taxes at all is to garner all your income from federal & municpal bonds.

    So… 100% of taxpayers paid no tax on at least $9,000 of income… I guess nobody gets to vote about taxes at all?

  16. Charlie says

    Ha, nice bullet points! I like your proposal and radical thinking. I can’t think about taxes too much or I end up getting furious because there are so many flaws in the system. It will be interesting to see if there are any radical changes in tax law over the next 10, 20, 30 years. With the slow to return confidence I have in the economy, I’d definitely feel better about spending if my taxes went down. If they go up after this year I think I’ll be extremely irritated and will likely stop spending so that I can build my savings faster and stop working sooner. Who wants to work harder if it means more and more of your hard earned dollars will be taken away…

    • admin says

      I wish someone could give me more fun bullets! Tim Geithner who cheated on his tax returns is classic!

      Good point you bring up. Maybe raising taxes might make us work harder to retire and enjoy gov’t benefits sooner!

  17. Darwin's Money says

    Wow Sam, that’s surprisingly “right of center” for you these days! Of course, this would never be allowed, especially by the current administration, because who votes democratic? Primarily, those not paying federal income taxes. By disallowing those votes, those damned greedy republicans would rule the country :>

        • Investor Junkie says

          Yea Sam wants all. He wants to make a lot, have a lot of
          social services (for all), and not get taxed a lot. Sounds like fantasyland to me.

          Me? I’ll take a small government (govt 15% GDP) any day, over a 35% – 40% GDP (which we’ve become) bloated, slow and bureaucratic. If you loved Europe, you’ll love the new
          and improved, bigger and more bloated USA. Act now as supplies are limited.

  18. Kris says

    Nice idea, but I disagree. I don’t think its fair, and even worse I have no confidence in the governments ability to track who pays and who doesn’t. And what about extensions? The rules are hard enough, without adding another layer. Somehow there needs to be a tiered flat tax rate. I’m no investment whiz so I’m sure the rich would protest, but it would make life much easier.

  19. Roger, the Amateur Financier says

    Another interesting subject as always, Sam. You do raise a good point; if you aren’t paying for it, why would you have any incentive to cut government spending? (Other than perhaps a sense of doing the right thing, economically, for the future of the country, I suppose.) If voting on spending was limited to those who had skin in the game, so to speak, it’d probably be much easier to get spending under control. (Although, you’d probably still have some problems, as there’s bound to be disagreement on WHAT to spend money on, anyway.)

    All of that said, other commentators are correct that federal income tax is just one of many taxes that we have in this country (which is part of the problem to start; too many types of taxes to manage). Do we just allow people to vote on spending for the taxes they have paid into? Do we set a bar for a minimum contribution to, say, the Social Security Administration before you can vote on how Social Security benefits are paid out? (And do we set an age or ‘total benefits received’ limit so the old geezers don’t keep voting to raise their benefits at the expense of us youngsters?) Do we add lists of government programs to the end of tax returns, so tax payers can choose which programs they want their taxes to help fund? (Actually, that might not be a bad idea; it would cut down on the number of tax dodgers who claim to they avoid paying taxes because they don’t want their money to help fund the armed forces/pointless research/political parties/hand-outs to the poor/corporations. Although, if the politicians are stupid enough to make their own salaries dependent on the goodwill of the taxpayers, that will be the end of that.)

    My point (and I did have one, in all of that) is that people are greedy bastards; we tend to want as much as we can get from the government, while wanting to pay as little as possible. I doubt that removing one group of current voters will make the process any more effective.

    • admin says

      “People are greedy bastards” BINGO!

      I think limiting the power of one group who doesn’t pay taxes to raise taxes on another group is a no brainer.

      It’s like men voting on women’s rights. Let the women decide!

  20. The Genius says

    Well said Rog. People are “greedy bastards”, which this current administration is proving all so well!

    Let’s spend other people’s money the way we want and raise their taxes for more money to add insult to injury!

  21. JollyHolly says

    Why do defenders talk about how it’s OK to not pay federal income tax since they also pay sales tax and state tax too?

    Hello people, folks who pay federal income tax also pay state and sales tax too. What’s your point? You’re still not paying Federal tax, which is the lions share of tax liability anyway, so don’t you guys dare say that this is not simply one of the fairest and ideas out there put out by Sam!

  22. Kevin@InvestItWisely says

    Well, one of the main failings of democracy is that while Peter cannot rob Paul directly without breaking the law, he most certainly can vote with other Peters to tax Paul and take his wealth that way.

    Is it right for 10 people in a room to hold down the 11th and steal half of his lunch? Most people would say no… why then is it OK to do this in society at large? Time to start evolving and making the tax system fairer, with the aim of reducing coercion of some by others in society at large.

    • Kevin@InvestItWisely says

      P.S. Read a few comments saying that this is “right-wing”. I see both sides as to blame, as both want to get something for nothing; one side just wants to give it to some special interest groups, the other wants to give it to some other special interest groups. In both cases, someone’s trying to use the system to shove off the costs to someone else while enjoying the benefits.

      • admin says

        Kevin – Is this a “right-wing” post? It only is if you say most people who don’t pay taxes are “left-wingers”/Democrats.

        Is that what you are saying? If so, why is this the case? Thnx!

        • Kevin@InvestItWisely says

          Sam, anyone who holds US property (including USD) pays US taxes of some sort or another. The tax structure itself is setup so that those with less income pay less income tax, but it also is so complex that many on the rich side can also find ways to pay less tax. If you are middle-class and no-kids, then you are likewise getting punished by most governments, with no easy way around those taxes and expensing everything off of post-tax income ;)

          Nonetheless, when government spends, the people ultimately have to pay for it in one way or another. The government can simply tax them now, or it can deficit spend which taxes them later through inflation. Either way, the government is able to bid away resources from the people and redistribute the pie using these tools.

          The left prefer that they spend these resources on helping poor, disadvantaged people. The right prefer that they spend them on bombs and tax breaks (without matching spending cuts). Whichever way you go, you are ultimately for higher taxes, whether or not you are paying that many taxes today! If you’re not going to pay them yourself, then someone else is ;)

          P.S. What’s up with the comment field? The right part seems to be chopped off and I can’t see what I’m typing :S

    • Roger, the Amateur Financier says

      The problem is that the concept of ‘fairness’ gets kind of tricky when you’re talking about society at large. For example, I could make the point that the rich benefit more from government services than the poor, and should thus pay a higher amount (in both absolute terms and as a percentage of income) than the less well off. Bill Gates benefits more from patent enforcement than I do, roads to a store are more profitable for the store owner than his employees, and protection from theft is more important to the guy with one million dollars than the guy with one thousand. How do you figure out their fair share of the overall tax burden?

      Now, don’t get me wrong, it’s currently too easy for the Peters in the nation to vote themselves money from the public largess, re-filling it with funds from the Pauls. (Or rather, it’s too easy for politicians to buy votes by doling out money to whatever group of Peters they expect to vote for them, knowing that they can get more money by taxing the groups they don’t like. (Or if they’re in the federal government, simply adding to the deficit and pushing the problem off on the next group of politicians.)) I just think that there are better ways to get around this problem, starting with a balanced budget amendment (preferably one that includes a requirement to pay off/build up a reserve to pay off the national debt in a set number of years, so we can take care of that Sword of Damocles before it falls on all our heads).

      • Kevin@InvestItWisely says

        Those are interesting points you bring up, Roger. The inability to calculate the “proper share” is one problem that occurs when you try to socialize costs. While it’s true that many benefit more from government services than do others, not only do you have to pay for the services whether you use them or not, but you often don’t have a choice in the matter.

        I’m sure some rich people benefit more from having an iPhone than I do, but the difference is that they only pay for it if they really want it. Likewise, perhaps we can start becoming more imaginative and try to figure out how to solve certain problems and do certain things by using market forces and entrepreneurialism, instead of simply saying that “well, those guys have the money, so we should just take it from them, give it to government, and then elect some guys to do X, Y, and Z with the money”. And again, this isn’t necessarily an issue with just left-wing politics; There are plenty of companies that are guility of using government to kick out competition, with perhaps more damage than done by welfare policies.

        Now, I certainly don’t propose dismantling everything, but I think we can see the point where things have gone too far, and we need to start scaling back somewhat. I find the current system is screwed because everyone seems government as some kind of giant game, where the better you get at “playing the game”, learning how to use the tax system to your advantage, etc… the better you do. Everyone wants to grab as much as they can out of this system, while contributing as little as they have to in return.

        It becomes a game of Peter blaming Paul blaming Mary, etc…. because the way the system works, what people put in and what people get out very rarely matches up. Therefore everybody feels entitled to something and loves to find a reason to make someone else pay for it by justifying it with reasons such as “well, they benefit more, so they should pay more, too”.

        Perhaps a balanced budget amendment would be a start to changing people’s ideas and to stop pitting different groups against each other to see how much of the pie they can grab for themselves. It will be a little tough with all of those third-rail programs, though!

  23. Cash bad credit says

    The past decade Tax cuts have been generous to wealthy taxpayers not for low- and middle-income families. This resulted into a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education.

  24. Dennis Murphy says

    If the voting system is so unfair to the rich why is there is a growing disparity between rich and the rest of us? Why is wealth being concentrated to fewer and fewer?

    The Middle Class in America Is Radically Shrinking. Here Are the Stats to Prove it
    Posted Jul 15, 2010 02:25pm EDT by Michael Snyder in Recession
    From The Business Insider
    Editor’s note: Michael Snyder is editor of theeconomiccollapseblog.com
    The 22 statistics detailed here prove beyond a shadow of a doubt that the middle class is being systematically wiped out of existence in America.
    The rich are getting richer and the poor are getting poorer at a staggering rate. Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a blinding pace.
    So why are we witnessing such fundamental changes? Well, the globalism and “free trade” that our politicians and business leaders insisted would be so good for us have had some rather nasty side effects. It turns out that they didn’t tell us that the “global economy” would mean that middle class American workers would eventually have to directly compete for jobs with people on the other side of the world where there is no minimum wage and very few regulations. The big global corporations have greatly benefited by exploiting third world labor pools over the last several decades, but middle class American workers have increasingly found things to be very tough.
    Here are the statistics to prove it:
    • 83 percent of all U.S. stocks are in the hands of 1 percent of the people.
    • 61 percent of Americans “always or usually” live paycheck to paycheck, which was up from 49 percent in 2008 and 43 percent in 2007.
    • 66 percent of the income growth between 2001 and 2007 went to the top 1% of all Americans.
    • 36 percent of Americans say that they don’t contribute anything to retirement savings.
    • A staggering 43 percent of Americans have less than $10,000 saved up for retirement.
    • 24 percent of American workers say that they have postponed their planned retirement age in the past year.
    • Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008.
    • Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
    • For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.
    • In 1950, the ratio of the average executive’s paycheck to the average worker’s paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.
    • As of 2007, the bottom 80 percent of American households held about 7% of the liquid financial assets.
    • The bottom 50 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.
    • Average Wall Street bonuses for 2009 were up 17 percent when compared with 2008.
    • In the United States, the average federal worker now earns 60% MORE than the average worker in the private sector.
    • The top 1 percent of U.S. households own nearly twice as much of America’s corporate wealth as they did just 15 years ago.
    • In America today, the average time needed to find a job has risen to a record 35.2 weeks.
    • More than 40 percent of Americans who actually are employed are now working in service jobs, which are often very low paying.
    • or the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
    • This is what American workers now must compete against: in China a garment worker makes approximately 86 cents an hour and in Cambodia a garment worker makes approximately 22 cents an hour.
    • Approximately 21 percent of all children in the United States are living below the poverty line in 2010 – the highest rate in 20 years.
    • Despite the financial crisis, the number of millionaires in the United States rose a whopping 16 percent to 7.8 million in 2009.
    • The top 10 percent of Americans now earn around 50 percent of our national income.
    Giant Sucking Sound
    The reality is that no matter how smart, how strong, how educated or how hard working American workers are, they just cannot compete with people who are desperate to put in 10 to 12 hour days at less than a dollar an hour on the other side of the world. After all, what corporation in their right mind is going to pay an American worker 10 times more (plus benefits) to do the same job? The world is fundamentally changing. Wealth and power are rapidly becoming concentrated at the top and the big global corporations are making massive amounts of money. Meanwhile, the American middle class is being systematically wiped out of existence as U.S. workers are slowly being merged into the new “global” labor pool.
    What do most Americans have to offer in the marketplace other than their labor? Not much. The truth is that most Americans are absolutely dependent on someone else giving them a job. But today, U.S. workers are “less attractive” than ever. Compared to the rest of the world, American workers are extremely expensive, and the government keeps passing more rules and regulations seemingly on a monthly basis that makes it even more difficult to conduct business in the United States.
    So corporations are moving operations out of the U.S. at breathtaking speed. Since the U.S. government does not penalize them for doing so, there really is no incentive for them to stay.
    What has developed is a situation where the people at the top are doing quite well, while most Americans are finding it increasingly difficult to make it. There are now about six unemployed Americans for every new job opening in the United States, and the number of “chronically unemployed” is absolutely soaring. There simply are not nearly enough jobs for everyone.
    Many of those who are able to get jobs are finding that they are making less money than they used to. In fact, an increasingly large percentage of Americans are working at low wage retail and service jobs.
    But you can’t raise a family on what you make flipping burgers at McDonald’s or on what you bring in from greeting customers down at the local Wal-Mart.
    The truth is that the middle class in America is dying — and once it is gone it will be incredibly difficult to rebuild.

    • admin says

      What is your solution for the middle class? What do you propose the middle class do to make more money? In your example of burger flipping at McDonald’s (I was a burger flipper for $3.25/hr), why is someone having a family if they are flipping burgers at McDonald’s?

      Do you believe in stats?

  25. tuttle says

    I don’t understand how so many people can make an argument for how overburdened the rich are with taxes. The average tax rate for the wealthiest 1% of Americans was something like 16.6% because they do not derive most of their income in the same way a middle class family does. While I forget the actual figure, I believe salaries and wages account for roughly 7% of the income for the wealthiest Americans. Warren Buffet has publicly commented how he is taxed less than his secretary.

    They may pay a larger sum of actual money, but that’s only because they make more money. As a percentage, the rich are burdened far less with taxes than the middle class, despite what a cursory examination of tax laws might appear to indicate. Even the estate tax that we hear so much fuss about has a $3.5 million dollar exemption PER PERSON. So with a couple the first $7 million dollars of an estate is not taxed under current laws. Even the amounts that are taxed are subject to a number of exclusions, including deferment for up to 15 years. http://www.cbpp.org/files/estatetaxmyths.pdf

    These same people that complain that their family farm is going to be taxed, who complain that we’re giving too much money to lazy unemployed people have no problem receiving billions every year in agricultural subsidies from good old Uncle Sam.

    The wealth gap has widened so much that the purchasing power of middle class is now lower today with two-income households than it was 30 years ago with a household with only one earner. In that same period income gains for the wealthy have nearly tripled. Is this a problem that needs to be addressed by decreasing the taxes on these select few?
    http://www.cbpp.org/cms/index.cfm?fa=view&id=3220

    I think that due to either illusory superiority or “the triumph of hope over self-interest,” many people tend to believe in things that are contrary to not only their own best interests, but the best interests of 90% of all Americans. However, when a full 39% of Americans feel they will some day be in the richest 1%, a club so exclusive I doubt many people can even conceive of what it means to have that much wealth, it’s not hard to see why there’s so much outrage about taxing the rich, even among those who aren’t, and will never be in that situation.
    http://www.nytimes.com/2003/01/12/opinion/the-triumph-of-hope-over-self-interest.html

    • admin says

      Tuttle:

      1) Yes, dividend income is huge for the wealthy. Hence, let’s just raise dividend income from 15% to 40%. We’ll get the wealthy, and also the retired granpas living in Florida on a fixed wage.

      2) What is WRONG with 39% of Americans believing they may some day be in the richest 1%? That is what America is ALL ABOUT! Having the motivation and ability to dream big and succeed on your own merits. Raising taxes the more you make squashes those dreams and disincentives people. That is not the right way. That is the way of backward economies.

  26. Mark says

    Interesting take. The only problem in the 15th Ammendment would be the previous servitude provision. I think that the best solution would be to switch from an income tax system to a tax system based on consumption.

  27. Benjamin Bankruptcy says

    I’m a vegetarian and wear leather shoes. I bought them in 2001 when I wasn’t a vegetarian. I think it’s ridiculous to throw out the shoes because i’m vegetarian, I’ll merely wear them till they wear out.

    Here in Australia we have a top tax bracket of 47% that kicks in at 150k per annum AUS $ = US $ at the moment. for every dollar above that the governement gets half.

    Personally I think flat tax rates and consumption taxes are more equitable and encourages individuals to earn more.

  28. Terry Pratt says

    Okay, I’d like to flip this question and would like a sincere answer (no sarcasm, please) from Sam:

    For a decade I lived in a rental house which was subject to a “nonhomestead” property tax. Because I regarded this as an unfair tax – it was levied on the house in whic I lived but was not levied on the owner-occupied house next door – I voted against it whenever it was on the ballot. (Like other millages, it required periodic renewal by voters.)

    Since owner-occupied homes are exempt from the tax, homeowners regarded the tax as free money and voted for it by huge margins.

    Sam, should homeowners have the right to vote for higher taxes (nonhomestead tax) on others if they do not own any nonhomestead property subject to the tax?

  29. mike corona says

    I bealive that if you payed no taxes its ok coase you pay them any way this is how when you buy a car or home you pay taxes on the sale a car can be maid for only example $2000 then sale the car or truck for $20,000plus and in that amount they pay employees salary witch people have jobs and taxes on there pay check plus the taxes that already payed for on the sale so the federal and state in fact are the biggest scam ever so I you buy something you payed you’re taxes and if you to clam exempt its okay and if you get money back all you’re getting is what you already payed form you’re purchase that way smart people go exempt I go both ways just to get the most out of my return next time when you something at the store look at the sales tax and ask you self way if you pay taxes on working .

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